TAKING STOCK: Let's not cheer over Libor fines - we'll be the ones to pay

In the next few days we should hear that Swiss banking giant UBS has received a huge fine for allowing some traders to rig or try to rig the Libor interbank lending rate.

The fines from various regulators are tipped to be as much as $1.6billion (£1billion).

This would be more than double that levied by regulators in America and Britain against Barclays for the same type of offences and it does not bode well for Royal Bank of Scotland, tipped to be the third bank to face Libor-rigging fines in the next few weeks.

Libor scandal: UBS is likely to be fined $1.6bn from various regulators

While the immediate temptation is to
cheer that some stick has been meted out to these firms, the people who
will really pay are the shareholders.

Thanks to various bailouts, they are
not the same people who owned the banks when the offences took place,
and in the case of RBS are mainly British taxpayers.

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At the other end of the scale is the kind of regulatory event that
pinpoints individuals. This is perhaps best illustrated by the case of
Peter Cummings, the boss of corporate banking at HBOS.

He was certainly not guilty of
dishonesty. He was fined and banned from the industry earlier this year
because of his serious ‘management failings’. Last week his private
testimony to a parliamentary inquiry was published.

Cummings’ testimony was largely an effort to exculpate himself, but his words leave troubling questions.

While his claim that it was
‘sinister’ that he came in for so much attention is perhaps
melodramatic, is it really true that of all the executives at HBOS only
Cummings merited such attention and censure?

The fact is that both of these
examples – big fines for a bank or humiliation for an individual –
provide only partial justice for the recent incompetence of our
financial system.
We should not take straightforward pleasure in a bank being fined when
we as taxpayers own a large part of it.

On top of that, the huge charges now looming for the sector (some
estimate total fines for banks over Libor will reach £8billion) will
weaken the system at a time when we need it to be robust and ambitious.

But blaming one or two individuals
might be equally invidious. It is farcical to blame any one person for
the disaster at HBOS, or at any other bank for that matter.

This is not to say that Cummings does not have to shoulder a sizeable
portion of blame. But many others were involved and all were swept up in
a culture of irresponsibility that had lost track of proper risk
management.

There but for the grace of God goes
many a banker.
The challenge for future regulation is to foster personal accountability
and responsible corporate and shareholder culture in our banking
system.